Ratings agencies have uncanny knack for getting it right
What is it with the ratings agencies that without a hint of shame they belatedly show up weeks after an event and with Delphic-like assurance tell us what's wrong with a company's credit status?
Yesterday Moody's, one of the top three credit rating agencies, lowered its rating for Sino-Forest, a mainland forestry company listed on Toronto's stock exchange and one of the stars of the current rumpus over corporate governance among private-sector mainland companies.
Moody's has downgraded its ranking from Ba2, which in its nomenclature means that the rated debt obligations are 'judged to have speculative elements and are subject to substantial credit risk', the agency says on its website.
The new rating is B1, which means that the debt is considered speculative and subject to high credit risk. This seems an understatement verging on the surreal if you look at a recent chart of Sino-Forest's 2017 bond. In mid-May the price began to weaken significantly before falling off a cliff in early June with no word from Moody's. Before the crisis, the bond was trading at US$101.688, collapsing to US$40 on June 22, though it has since recovered slightly to about US$50.
The Moody's action comes a day after Fitch, another rating agency, also woke up and noticed that its rating for Sino-Forest needed to be aligned to reality. It withdrew the rating on Monday.